military pay & taxes

This is not a fun topic, but one that may help someone out there.

At the end of this year, we will lose our AIP (assignment incentive pay). I sat down today, to redo our budget spreadsheet and remove the AIP from our “fun money”. After sitting there for a sec, I realized I had no clue whether it was taxed or not. I know base pay and flight pay are taxed and BAH and BAS are not but AIP was throwing me. I did a little research and found this gem.

“A helpful rule of thumb is that if the entitlement contains the word “pay” in the title, i.e. Basic Pay, it is considered taxable income unless the service member is serving in a designated tax-free combat zone. If the entitlement contains the word “allowance” in the title, i.e. Basic Allowance for Housing, it usually is non-taxable.”

Of course this is not a 100% rule, but close enough. I’ve been a military spouse for 12 years and never thought about it in those terms. Of course, up until the last 18 months or so, we never had anything in our regular non-TDY/deployment paychecks other than base pay, BAS and BAH.

This applies to every branch (Air Force, Army, Marines, Navy, Coast Guard) and active duty, National Guard and Reserves.

So, for example (this list is not complete as I do not know of every miltary pay out there)….

 

Taxable (unless in a tax free combat zone, where every entitlement is tax free)

  • Base Pay
  • Flight Pay (Aviation Career Incentive Pay for Officers or Career Enlisted Flyer Incentive Pay)
  • AIP (assignment incentive pay)
  • Hazardous Duty Incentive Pay
  • Dive Pay
  • Sea Pay
  • Submarine Pay
  • Drill Pay
  • Foreign Language Proficiency Pay
  • Special Pay for Medical and Dental Officers
  • Special Duty Assignment Pay
  • Hardship Duty Pay
  • Hostile Fire and Imminent Danger Pay (this one is in the gray area, since it is usually only for locations that are already tax free combat zones anyway)
  • Stop-Loss Pay
  • Enlistment and Reenlistment Bonuses (this is an exception to the “pay” rule of thumb)

 

Non-Taxable

  • FSA (family separation allowance)
  • BAH (basic allowance for housing)
  • BAS (basic allowance for subsistence)
  • DLA (dislocation allowance)
  • Clothing Allowance
  • COLA (cost of living allowance)
  • OHA (overseas housing allowance)
  • Per Diem (this is an exception to the “allowance” rule of thumb)

 

If you are looking at an LES and say “I know we get special pay but I don’t know what kind”, take heart. The military has a knack for lumping them all together under a label of  “Save Pay” which is taxable. If you want the breakdown of what they are, I’ll pray for you while you take a trip to finance or brave the DFAS phone lines :)!

Thoughts?